Trust property must be productive. But what does that mean exactly? Well if you have rental real property in a Trust, it needs to be rented. If you have cash in a bank account, it needs to be invested. If you have a car that no one drives, it needs to be sold. And if you have pink flamingoes, well you get the idea.
The point here is that Trust property cannot simply sit around gathering dust. As a Trustee of a California Trust, you have an affirmative duty to take control of Trust property and put it in a position to produce something. Assets have the potential to produce income, appreciation, or both. And having the assets grow and generate income is one of the basic requirements for any Trustee.
Luckily, the Trustee is not expected to know how to do all of this on his or her own. The Trustee has the right to hire professionals to help advise on decisions as to what to do with Trust assets. For example, if you have rental real estate, the Trustee can hire a property manager to rent it. Or hire a real estate broker to list the property for sale. If you have cash assets that need to be invested, then a certified financial planner can be hired to advise on a proper investment portfolio.
And if the Trust currently has invested assets that are not doing well, then the Trustee has a duty to sell the bad stuff and buy into a better portfolio.
In the end, it is the Trustee’s responsibility to build the Trust assets into something better for the beneficiaries to enjoy in the future.
One of the most important financial duties of a Trustee is to take control of all Trust assets and act to preserve those assets from loss. This can mean different things in different situations. For example, if you take over a Trust with a volatile stock portfolio, you may have a duty to sell the risky stuff quickly and preserve what is there for the beneficiaries.
When it comes to real estate, you have a duty to secure the property, purchase insurance, and either make the real property productive by renting it, or sell it for the fair-market-value.
And the list goes on and on depending on the assets involved and the problems encountered. The one consistent in administering Trusts is that nothing is ever consistent. Each Trust presents its own problems and roadblocks. The key, however, to living up to this duty is to take the risk out of the equation. Just because the Settlor invested in risky assets does not mean you are allowed to do so as Trustee. Or just because the Settlor allowed a house to sit vacant with no renters and no insurance does not mean you can do the same.
As Trustee you have an affirmative duty to act to protect and preserve Trust assets. You have to lock up the Trust property and keep it safe until the time comes to give it out to the beneficiaries.
The best approach is to gain control of all Trust assets, and then confer with a financial professional to determine the best way in which to invest or hold the assets until time of distribution. For some Trusts, the time to distribute comes quickly, for others it comes later. Either way, a proper plan is required to ensure the assets are preserved for their ultimate owners—the beneficiaries.
When faced with a Probate Court Petition that you do not agree with, you must object. Luckily, in California you have some leeway on when you can object because our Probate Code allows interested parties to object orally at the initial hearing. In other words, you technically do not have to have a written objection before the initial hearing date.
But that does not mean that objecting orally is the best way to go. In most cases, we prefer to file a written objection at least five days before the hearing date to ensure that the objections are preserved.
Probate court is a court of equity—meaning the court can take action, issue orders, and approve petitions anytime there are no objections. Even when there are objections the court can overrule the objections and issue orders—although the law requires a trial at which to present evidence to decide most probate court matters.
The point is that if you fail to object in writing, and if you fail to show up on time at the probate court hearing, then you may be out of luck. Once the court issues orders or approves a petition, it takes a good deal of work to overturn the result—assuming you can overturn it at all.
If you are going to rely on an oral objection at a probate court hearing, then be sure to show up on time. If you want to play it safe, then file your written objection well before the hearing date so the judge will be sure to read it.
The Trustee wants to be done with the Trust administration and decides to have the beneficiaries sign a waiver and release so a final Trust distribution can be made. But waivers and releases are not always the best way to proceed in Trust matters because they can be challenged and overturned by a beneficiary after the Trust assets are distributed.
The law places a heavy burden on Trustees to ensure releases are not obtained unfairly. Since Trustees are in a position of power over beneficiaries (and control the purse strings of the Trust), any waiver or release obtained from a beneficiary in favor of a Trustee is suspect.
How waivers and releases fail
For starters, Probate Code section 16004.5 states that any release that is conditioned on a beneficiary receiving an otherwise required Trust distribution is invalid. And that scenario happens all the time—a Trustee demands a signed release before making a distribution. That is a clear recipe for disaster because the release will fail and a future lawsuit will occur.
Furthermore, Probate Code section 16464, provides more ways in which to set aside a release, which include:
the incapacity of the beneficiary,
where a release was obtained by a bad act of the Trustee,
where the release involves a bargain that is not “fair”, or
where the beneficiary was not fully informed of his rights and all the necessary material facts.
That’s a lot of ways out of a release!
So how do you properly end a Trust administration?
Since a release can be overturned many different ways, the best approach is to seek court approval of a Trust accounting because that closes the door to future lawsuits by the beneficiaries without any doubt. But if an accounting is out of the question, then at least approach a release in the best way possible.
First, never condition a release on the distribution of Trust assets. In fact, make a preliminary distribution of assets BEFORE asking for a release. That will prove that the Trust distribution was not conditioned on a distribution of Trust assets.
Second, have the beneficiary review the release with a lawyer of their choosing so they cannot complain later of not understanding the implications of the release.
Third, disclose as much information about the Trust and Trust assets to the beneficiary before asking for a release. Since a release can be set aside if the beneficiary was not fully informed of all rights and material facts, it is imperative that the Trustee disclose all known information to a beneficiary before asking for a release. And the disclosure should be done in writing so you have proof of what was disclosed.
Don’t sign what you don’t understand
If you are a beneficiary and have been asked to sign a release or waiver under suspicious or unfair circumstances, do not sign anything until you have a lawyer review the release with you. This is especially true where the Trustee conditions a Trust distribution to you on your signing a waiver and release. While there are ways to overturn a release, you do not want to have the burden of doing so if you don’t have to.
The bottom line
Court-approved accountings are the best protection a Trustee can have against later beneficiary lawsuits. But if you want to go the waiver and release route, at least be sure to follow the rules and create a waiver and release that is likely to be upheld if you are ever sued by a beneficiary in the future.
You have been sued on a Trust or Will dispute and you have to defend yourself. The most obvious defense is to disagree with the allegations contained in the petition filed against you. But there is another type of defense: the affirmative defense.
Affirmative defenses are independent legal and equitable reason as to why you cannot be held liable. In other words, even if everything the petition says is true, you still are not liable because of your affirmative defense.
The most often used affirmative defense is statute of limitations. For example, if you are served with Trustee notification after someone dies, you only have 120 days in which to file a Trust contest lawsuit. If you fail to do so in that timeframe, then you cannot prevail on your suit no matter how great your evidence is. The statute of limitations will block your recovery as an affirmative defense.
How do you best use affirmative defenses in your Trust or Will lawsuit?
For starters, most affirmative defenses will be waived IF you do not state them in your initial objection or answer. For that reason, most lawyers will throw in every affirmative defense known to man, a sum total of twenty to thirty affirmative defenses—many of which have no factual support, but there they are in the answer.
Use ’em or lose ’em
You definitely should include as many affirmative defenses as possible, but no every one known to man. Let’s be realistic, at some point the other side will ask for all your facts to support each defense (if the other side is good at what they do). If you don’t have the facts to support your defenses, they will be thrown out either before or at time of trial.
In some cases, an affirmative defense can be a powerful tool to stop a lawsuit in its tracks. In most cases, however, an affirmative defense could prove useful, but you won’t know for sure until more evidence is uncovered.
Here are some of the more common affirmative defenses:
Statute of limitations is nearly always pleaded as an affirmative defense, but it means little without facts to establish that statute of limitations was violated. Since this claim is waived if NOT pleaded at the beginning of the lawsuit, it is always a good idea to include it.
Failure to state facts constituting a cause of action is another common defense. Most of the time, this affirmative defense is useless, but you never know. Essentially, this defense just means that even if everything pleaded in the complaint is true, the plaintiff cannot win because he failed to include some essential element of his claim—a highly technical defense that’s rarely successful.
Estoppel, unclean hands, waiver, laches—each of these are separate concepts and separate affirmative defenses, but they have one thing in common: equity.
For example, estoppel simply means that a party should not be allowed to win because it would be unfair for some reason.
Laches means someone waited too long to take action and it would now be unfair to enforce the claim.
Unclean hands means the party being sued acted unfairly too, and waiver means someone (by their actions) waived their right to a claim.
Each of these equitable principles are hard to establish, let alone win. But they can be useful from time to time and they are waived if not pleaded in the response/answer, which is why you see them in nearly every response/answer.
Increase the strength of your defense
There are quite a few more affirmative defenses that apply depending on the type of case you have. This list gives you a few examples of the most commonly used defenses.
Affirmative defenses have an important place in your lawsuit, provided there are facts to support them. The goal is to figure out which defenses apply, or potentially apply, to your case and add them into your answer.
The duty of impartiality: Is your Trustee treating you equally?
Imagine a world where a Trustee treats each of the Trust beneficiaries equally. That is supposed to be the world we live in for ALL California Trust matters (California Probate Code section 16003), but it does not always work that way. All too often a Trustee will decide to treat some beneficiaries differently than others. For example, a beneficiary who complains may be treated more poorly than the other beneficiaries who keep quiet. If the Trustee is a sibling, then inequality can run rampant based on sibling rivalry alone.
When beneficiaries have disagreements among themselves, the Trustee is supposed to take a neutral stance and not advocate one beneficiary’s position over the others. There are some Trustees, however, who just can’t resist joining the fight.
Treating all of the beneficiaries equally is not always an easy task. This is especially true when you have more than a couple beneficiaries. The more people involved, the more disparate viewpoints you have. That means more chances for disagreements with the Trustee. When family, money, and heirlooms are at stake, things can get out-of-hand quickly.
What’s a Trustee to do?
For Trustees, it takes a good deal of patience. You need to slow down and do things the right way. Start with full disclosure and transparency. If you have conflicting viewpoints, then let the beneficiaries know the problem and ask for their input. The Trustee ultimately makes the call, but asking for advice and consent of the beneficiaries never hurts. It makes the beneficiaries feel involved and they just might come up with a workable solution.
If that does not work, then seek the court’s help. Trustees are allowed to petition the court for instructions on what to do. When a Trustee cannot act for fear of disfavoring one of the beneficiaries, the court can intervene and make the decision instead. This process allows each of the beneficiaries to weigh in with their thoughts and arguments on the issue. And the Trustee can remain neutral and allow the process to guide the way.
What’s a beneficiary to do?
For beneficiaries, you have no control over a Trustee. The only way to force a Trustee to behave is to seek court assistance. Beneficiaries have the right to petition the court for instructions to the Trustee. This process allows the court to review the issue and then order the Trustee to act, or not act, based on the evidence presented.
Every Trustee has a duty of loyalty (California Probate Code section 16002). The duty of loyalty requires the Trustee to administer the Trust solely in the interests of the beneficiaries. That term “solely” really makes the point—there can be no other reason to act when administering a Trust other than what’s good for the beneficiaries. Seems obvious, I know, but not always practiced by Trustees.
Many Trustees think they can do whatever they want with the Trust assets, use whatever professionals they like, charge any amount of Trustee’s fees they like, or delay distributions when it benefits the Trustee to do so. Not so. Under the duty of loyalty, a Trustee must act solely in the interests of the beneficiaries.
A good example of failing the duty of loyalty test is hiring a close friend as a real estate agent to sell real property. Maybe this friend is not the best choice, or is paid an excessive fee, or lacks the experience to sell the real property in question, yet the Trustee uses them anyway. That’s a common example of disloyalty, and it can happen without the Trustee even realizing it is a breach of duty.
What can you do about it?
When confronted with a disloyal Trustee, you have to take action to protect your rights as a beneficiary. Disloyalty is not just a breach of trust, its one of the worst forms of beneficiary abuse because it places the interests of the Trustee above the interests of the beneficiary. That’s the exact opposite of what is supposed to occur.
The written objection
First, you need to voice your objection to the Trustee’s action in writing. If the Trustee is taking advantage of a situation, say something. It need not be anything formal, a simple email or handwritten letter will do. And it need not be confrontational or accusatory, you can simply tell the Trustee “I understand you are going to take this action, and I object to it because I don’t think it is fair to me for you to do so.” You can send this written objection on your own, no need for a lawyer here.
We are not naïve enough to think that a simple written objection will stop the Trustee in his or her tracks—it won’t. But what it does do is put the Trustee on notice of your objection. And you can use that written notice to your advantage later when you are in court to prove to the judge that you took the initiative to voice your objection and the Trustee acted over your objection.
Remember to help yourself in a Trust dispute you need to show you tried to act reasonably. That’s not a legal requirement, but it goes a long way to convincing a judge to help you because you first tried to help yourself and it failed to work.
Seeking help in court
Second, you need to take action in court as soon as possible. When you have an abusive Trustee, things will not get any better (usually) without court intervention. The burden is on you to file in court and stand up for your rights.
For example, if the Trustee is about to sell real property to a friend in a below-market deal, then you have to stop it. And the only way to stop it is to file a petition for instructions in court and ask for an injunction. You have rights, but it is up to you to use those rights to protect yourself.
Many people ask “why is the burden mine to protect myself, isn’t the Trustee supposed to do the right thing anyway?” Yes, the Trustee is supposed to do the right thing, but when the Trustee fails or refuses to act appropriately, it’s up to you to bring those actions to the court’s attention. No one else is going to enforce your rights for you. The rights are there for you to use, but use them you must.
Secure your future today
You can resolve your problem. A disloyal Trustee can be stopped and the Trust administered according to its terms. That’s not to say you will get everything you want from your legal case. Every case is different and every resolution is different. You will get some amount of fairness, justice, and resolution even if it’s not everything you wanted. There is an end in sight once you enter our court system.
Your goal should be to obtain the best resolution you can under the circumstances. Stop the Trustee’s disloyalty and reach a resolution that allows you to move on with your life.
It is not uncommon for one child out of many to receive gifts from a parent during the parent’s lifetime. And as you might imagine, the other children who do NOT receive equal gifts are none too happy about it.
So naturally, once a parent dies the siblings attempt to reduce the gift-receiving child’s share by the amount of gifts received during life. The claim is always the same: that child already received part of his or her inheritance.
When it comes to lifetime gifts, the rules are set out under Probate Code section 21135—called “satisfaction”. Section 21135 provides that property given to a child during life does NOT reduce that child’s share at death UNLESS one of four conditions is met:
The Trust or Will specifically states that lifetime gifts are to be reduced from that child’s share,
The parent states in a writing at the time the gift is made that it is meant to reduce the child’s share at time of death,
The child receiving the gift acknowledges in writing that the gift is meant to reduce his or her at-death share of the estate, or
The property given to the child is the same property identified as a specific gift to the child.
There is one common theme to these four alternatives: certainty. The law wants to be absolutely certain that the gift is meant to reduce the child’s share of the estate at death. If there is no certainty, then the law presumes that the child’s share shall NOT be reduced.
In other words, the law has no problem with a parent favoring one child over the other during life. In fact, it is presumed that parents will do so. And without certainty of a contrary intent to reduce that child’s share of the estate, no reduction can take place.
The reason certainty is the legal rule in these cases is that it’s much easier to apply after the parent’s death. With the parent gone and unable to clarify their intent, only a clear writing will do. That makes it easy for the Court’s to determine that satisfaction simply will NOT apply unless a clear writing from the parent says otherwise.
And yet, that does not stop children from making this argument even without the necessary written support. In fact, this may be one of the most common legally baseless arguments we face in our practice. It can be difficult for children to accept that one or two favored children were just that—favored. And so the argument is made that their share must be reduced.
Well Trust and Will law is full of unpleasant surprises. So next time you feel like reducing your siblings’ share of the estate, be sure you have a writing from your parent to back you up. Otherwise, you will never be satisfied.
Can you unduly influence someone NOT to take an action? In nearly all Trust and Will disputes, an undue influence claim is brought to overturn a Trust or Will that was executed while the elder was unduly influenced. But not every Trust and Will case turns on action, sometimes inaction can be just as damaging.
For example, sometimes parents get mad at their children (sometimes you ask? Okay it happens all the time). And to punish the child, a parent will rush to the lawyer’s office and amend the Trust or Will to reduce that child’s share or disinherit them altogether.
A few years go by, the parent and child make amends, and the parent wants to change the Trust and Will again to return the child to his full share of the estate. But then, another child gets wind of this intent and tries to prevent it. Maybe the other children had no problem with this one “trouble maker” getting booted out of the estate and thereby increasing everyone else’s share.
Undue influence is the use of severe pressure that causes the elder to replace his or her own intent with that of the wrongdoer. Influence (of the undue variety) is not illegal. Everyone is influenced every day by the people around them. But undue influence is more sinister in that is supplants the intent of the elder completely.
Undue influence can be used to cause a person to act, or refrain from acting, in a way that overcomes the person’s free will. (See Welfare and Institutions Code section 15610.70).
As a result, where a parent is kept from changing a Trust to add a disinherited child back into the estate, undue influence could be used to overcome the resulting distribution.
There is NO such thing as a short mediation. Mediations work because of the time it takes to conduct the negotiations. The longer the process takes, the more likely you are to settle.
It is a bit like percolating coffee, it takes time to do it right. You cannot rush the process, so don’t try. The magic is in the waiting, so rushing would be counter to your ultimate goal.
Why does the process work? People wear down as mediation drags on. What seemed like an impossible settlement at the beginning of the day suddenly can become achievable after 8 hours of sitting in a room and negotiating with the mediator.
Create your negotiation plan.
To mediate successfully, you need a negotiating game plan. First, we like to set a high anchor point—that’s the initial offer. You need it to be high enough to leave plenty of room to negotiate, but not be so high that it is laughable. This can be a fine balance, but the point here is to throw out the first offer and make it high. Once you set that anchor point, you are in the driver’s seat at the beginning of the process.
A thousand points of light…
Next, consider using a multipoint offer. The more items you can include the better because it allows the opposing side to pick and choose which terms they like and which they do not. By having a menu of terms (let’s say ten different terms you want) you might find that you are in agreement on a majority of the terms and that leaves the negotiation down to just a couple of terms.
Never let them see you sweat.
Lastly, don’t give up until you settle or the other side walks out. Many people get frustrated or insulted by the offers being made in mediation. You should never be insulted, offers are just offers nothing more. And if you force the other side to walk out before settling then you will know where their breaking point is. If you are the first one to end a mediation, then you have no idea how far the other side might have gone before calling it quits—but they know your breaking point. Don’t give up that advantage. It is fine if you want to stick to your guns and not drop your offer, but don’t let the other side know your breaking point.
Confession is good for the soul.
One final thought: know beforehand whether your case MUST settle or not. This is not something you want to share with the mediator or the other side, but you need to know the answer to this question. Are you really prepared to go through the costs and emotional strain of your case continuing? Do you really have enough evidence to take a good shot at winning at trial? It is time to be brutally honest with yourself. If you can say yes, I can continue, then you are in a strong negotiating position and you can hold out much longer. If you say no, my case must settle, then you can hold out as long as you can, but in the end you need to take the best deal offered.
It has been said that a bad settlement is better than a great trial. That’s because with a settlement you are in control of your resolution, whereas trial is a real unknown. Mediation gives you the chance to be in control, but you need to understand the trust mediation process so you can use it to your advantage.